A blind trust enables an insider to give a trustee the sole responsibility to decide on the timing of sales of company stock, without participation by, or knowledge of, the insider. It allows insiders to achieve investment diversification and reduce risk without running afoul of securities regulations.
Do you have to pay taxes on a trust fund?
Trust beneficiaries must pay taxes on income and other distributions that they receive from the trust, but not on returned principal. IRS forms K-1 and 1041 are required for filing tax returns that receive trust disbursements.
How do you end a blind trust?
Follow the trust directions, usually by notifying the trustee of plans to terminate the blind trust. This should be done in a letter or with a formal revocation of trust document. Consult a lawyer if the trust agreement does not spell out specific steps.
Do you have to pay taxes on a blind trust?
Taxation of Blind Trusts Like all other types of trusts, blind trusts can either be set up as pass-through entities or can be taxed at the trust level, with the money to pay the taxes coming out of the trust. Either way, the owner/beneficiary ultimately foots the tax bill for the investment income generated by the trust assets.
How are assets placed in a blind trust?
In a blind trust, an individual places assets that could otherwise create conflicts of interest into an asset vehicle (“trust”). Control over the trust and its assets are given to an independent trustee, who may buy and sell assets without the knowledge or consent of the beneficiary (“blind”).
How are capital gains treated in a blind trust?
Assuming the blind trust agreement created a valid trust for income tax purposes, a transfer of capital property to the blind trust is generally treated as a disposition of the property at fair market value, with the resulting recognition of any capital gain or capital loss.
Who is the trustee for a blind trust?
The trustee for a blind trust cannot be the trustor. The trustee must be a third party who doesn’t have a close, personal relationship to the trustor. This is necessary for a blind trust to serve its intended purposes: avoid conflicts of interest and achieve a high level of privacy. How Does a Blind Trust Work?
